Why AAX? Low cost carrier benefited from weakening of USD dollar (TP:??)

Author: itjustabouttheprofit   |   Publish date: Sat, 16 Apr 2016, 12:09 PM 

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EPS estimation :

5.4sen (31 March 2016)

2sen (30 June 2016)

2sen (30 September 2016)

2sen (31 December 2016)

PE ratio : ??

Target price: ??


I am here to ANSWER a simple question.
Why AAX?

1) Forex gain on borrowing of more than 
RM100million for quarter ended 31 March 
2016 (Net effect, increase in EPS3.4sen)

2) Sales in advance increased significantly
compare to last year

3) Saving in aircraft fuel expenses and
interest expense

4) Strong growth in global February Air Traffic

Introduction

On 10 July 2013, Airasia X have been listed
in bursa Malaysia.

Since then, Airasia X share price have been
dumped from RM1.20 (IPO price) to as low
as RM0.15.

After the release of quarter result on 26
February 2016, Airasia X started to move up
to RM0.345 as per today.

Why AAX?

1) Forex gain on borrowing of more than 
RM100million for quarter ended 31 March 
2016 (Net effect, increase in EPS3.4sen)


Let's us check on the currency rate of US dollar against ringgit during 31 December 2015 and 31 March 2016.

a) According to XE.com, USD1 = RM4.29750 as per 31 December 2015
b) According to XE.com, USD1 = RM3,87077 as per 31 March 2016

Now let's using the information about to calculate for the forex gain:

Refer to the page 13 of AAX for quarter ended 31 December 2015, we notice that there are RM1,429,038k of borrowing denominated in US dollar. 

USD1 = RM4.29750 (31 December 2015)
Total borrowing as per 31 December 2015 (in USD) = RM1,429,038k / RM4.29750 = USD332,528k

USD1 = RM3.87077 (31 March 2016)
Total borrowing as per 31 March 2016 (in USD) = USD332,528k (assuming is the same)
Total borrowing as per 31 March 2016 (in ringgit) = USD332,528k x RM3.87077 = RM1,287,139k

Total borrowing as per 31 December 2015 (in ringgit) = RM1,429,038k
Total borrowing as per 31 March 2016 (in ringgit) = RM1,287,139k
Total forex gain = RM1,429,038k - RM1,287,139k = RM141,899k or RM142million

Effect of forex gain per shares
= RM141,899k / 4,148,000,000 shares
= EPS 3.4sen per shares

With the calculation shown as per above, I believe that the forex gain will increased the earning per share for AAX for 3.4sen per share.



2) Sales in advance increased significantly
compare to last year


Refer to the balance sheet of AAX for quarter ended 31 December 2015, we noticed that the sales in advance have been increased by RM187k or 31.69% compare to 31 December 2014. It is a positive sign shown that the sales expected to be more than last year for the outcoming quarter.

3) Saving in aircraft fuel expenses and
interest expense

Refer to page 6 of quarter report for period ended 31 March 2015, the average fuel expenses is at USD83.94. For the period from 1 Jan 2016 to 31 March 2016, the oil price moving around USD25 to USD40.

Other than that, we noticed that from 31 December 2015, the average fuel expenses is at USD62 per barrel. We expected that for the upcoming quarter, the average fuel expenses will be lesser than USD62.

Also, with the currency rate against US dollar have been appreciated, hence we expect another cost saving in the interest expenses.



4) Strong growth in global February Air Traffic

http://www.businesstravelnews.com/Transportation/Air/IATA-Strong-Growth-In-Global-February-Air-Traffic
Fueled by strong international flight demand, low oil prices and an extra leap-year day, global passenger air traffic in February increased 8.6 percent year over year, as measured in revenue passenger kilometers, according to the International Air Transport Association.

February traffic on international routes increased 9.1 percent year over year, led by a 12.7 percent increase in Africa and an 11.6 percent increase in the Middle East, according to IATA. North American international revenue passenger kilometers increased 3.6 percent, the lowest increase among global regions. European international demand increased 7.7 percent.

February domestic RPKs increased 7.9 percent year over year and 8.9 percent in the United States.

Global capacity, as measured in available seat kilometers, increased 9.9 percent year over year. Load factors, however, dropped by 0.6 percentage points, the first such year-over-year decline since mid-2015.

"It is unclear whether this signals the start of a generalized downward trend in load factor, but it bears watching," IATA director general and CEO Tony Tyler said in a statement.

As KLIA2 is one of the largest (if not the largest) low cost carrier terminal, I believe that I will also being affected from the strong growth of Air Traffic.

Trade at your own risk!!! Do research before any investment decision!! Happy trading :-)